Australia braces for new tourism boom as flights surge

Australia is on the brink of its biggest tourism boom since the influx of Japanese tourists in the 1980s, as a rising Asian middle class and new aircraft technology encourages airlines to launch hundreds of new flights and re-map the traditional aviation hubs linking the country with the rest of the world.

A dramatic shake-up of Qantas and Virgin Australia’s international routes, at a time when a record number of foreign airlines are opening up new routes into Australia, will spur the growth and further cut airfares, which have fallen 30 per cent over the last decade.

Government ministers, airline chiefs and tourism officials told the AFR Weekend the country must prepare for a tourism bonanza, which has the potential to replace mining as the country’s key economic pillar.

However, there are concerns within the $120 billion industry that Australia lacks the infrastructure to cater for millions of new visitors and believe more resources need to be injected into one of the country’s few growth industries.

“I used to say Australia was geographically challenged, now I think it is geographically privileged because it is only one sector away from the biggest population in the world which is transforming so much,” Virgin Australia chief executive John Borghetti said in an interview on board his airline’s first Melbourne to Hong Kong flight this week.

“We are about to see on steroids what we saw in the early ’80s with the Japanese.”

However, he also warned Australia’s tourist infrastructure was not ready for the influx of Chinese and other tourists visiting the country.

“There has not been enough long-term planning in Australia, in politics or business and things have suffered. Infrastructure has suffered. Standards have dropped in terms of treatment of international tourism in Australia.”

Virgin this week launched direct flights from Melbourne to Hong Kong, shaping up to the Qantas-Cathay duopoly on the route. In its first international expansion since 2011, Virgin is shifting its focus from Europe to concentrate on Asia and North America.

China landings

Mr Borghetti said he wants to by flying into China next year. The move is a further sign that Australia is becoming less reliant on the Middle Eastern hubs of Dubai and Abu Dhabi, although they still remain important.

Qantas also has big international expansion plans. The arrival of the airline’s first Boeing 787 Dreamliner aircraft later this year will be a game-changer and allow Qantas to become the first airline in the world to fly Australia to London direct. It launches the 17-hour-long flights from Perth in March and expects to be flying direct from Melbourne and Sydney to New York and London in the early 2020s.

“We are no longer a destination at the end of the line, Trade, Tourism and Investment Minister Steve Ciobo said

“This is changing the way we deal with tourism and the inbound tourism numbers. There is a direct correlation between the availability of flights and the number of tourists. If we build additional aviation capacity, then we will get an increased tourism dividend from that.”

The Australian government is in talks with a host of countries to secure more liberalised air services agreements. Mr Ciobo said Australia could also become an important hub for Latin America into Asia. International aviation capacity in Australia has grown 30 per cent over the last five years. A record 1.2 million Chinese visitors came to Australia last year.

The industry is particularly excited about the possibility of direct routes to Europe and North America for the first time in Australia’s history. This should open up markets such as the United States east coast where travellers have traditionally been put off by the prospect of taking two long flights.

“I remember growing up and having to fly via Singapore-Bahrain and into London. We are becoming more and more part of the international community and it is a very exciting time,” Tourism Australia managing director John O’Sullivan said.

“The tourism industry now is becoming more about technology. It has been one of the most disrupted industries since the advent of the low-cost carrier. Every time it is disrupted, it throws something out that makes it easier for the consumer.

New technology

“Low-cost carriers unlocked this whole segment of a market. New technology and the way consumers book their own holidays themselves on their phones are changing things again.”

Analysts say new fuel-efficient aircraft such as the Dreamliner, which offer more comfortable flying conditions and can cover longer distances, would also open up new routes. However, direct long-haul between Sydney and London, for example, could be confined to wealthier passengers initially.

“As advanced ultra-long-range aircraft such as the Boeing 777X and Airbus A350-900ULR take to the skies, some airlines will be able to offer non-stop flights such as Sydney-New York or Melbourne-London at a premium price while keeping the stopover routes as the more affordable option,” David Flynn, the editor of Australian Business Traveller said. Mr Flynn said airfares are 30 per cent below where they were 10 years ago.

There was a flurry of discounting on fares. A single fare from Sydney to the United States is as low as $1000 per person.

“With very few exceptions, international airfares continue to trend downwards,” he said. “With very few exceptions, international airfares continue to trend downwards,” he said.

British billionaire Richard Branson offered a longer-term look at Australia’s role in the global travel market this week when he predicted there would be high-speed sub-orbital flights taking 30 minutes between Sydney and London, although that technology was decades away.

Mr Branson’s Virgin Group is also working with US startup Boom on supersonic jet technology which would reduce travel time to cities like London to a few hours.

“Air travel is the only way of getting to Australia really and so having competition in the airline business is really important for the travelling public,” he told AFR Weekend.

While there is no shortage of international travellers due to the rising middle classes in countries like China, the debate now is focused on what Australia can do to attract a bigger slice of the pie. Chinese tourism numbers are booming but the growth is greater in other parts of the world such as Europe.

Infrastructure ‘lacking’

The federal government and Tourism Australia was on a charm offensive in Hong Kong this week to sell Australia’s natural beauty, food and other attractions to the rest of the world. However, there are also critics such as travel agents catering to foreign tourists who say there is a lack of quality hotels and other infrastructure to keep up with demand.

Tourism authorities are also keen to develop new attractions to replicate the success of the Sydney Bridge Climb.

Tourism Australia has a goal of 20,000 new hotel rooms by 2020 and has been working with Austrade to target Chinese investors such as the Wanda Group. However, relying on Chinese funding to boost the industry would be dangerous given signals from Beijing last month it might crack down on big spending by large conglomerates.

While Tourism Australia receives record funding, some in the industry criticised a $35 million budget cut to the organisation’s funding over the next four years. However, O’Sullivan said the allocation was only reduced because of the funding model’s link to foreign currency hedges.

He said Tourism Australia was focused on tapping growth in Asian and North American markets and has launched a strategy that focuses on utilising travel agents who still account for the bulk of bookings for Australia. It is working with1500 specialist travel agents in Hong Kong alone.

“We want to unravel the mystery around Australia. Australia is sometimes seen as a difficult destination, just the basic things like driving distances,” he said.

Ciobo said there were ongoing discussions with Chinese airlines looking to increase capacity into Australia. He said the government’s role was removing impediments to passenger movements such as by streamlining departure cards and speeding up the customs process.

“I want to make it easier for aviation to have liberalised air services agreements between Australia and other countries.”

Total international aviation capacity reached 25 million, up 9 per cent for the 12 months ending March 2017. This was led by China with 24 per cent growth, and Japan with 15 per cent.

Qantas also launched a flurry of new routes over the past year, including a Jetstar service from Melbourne to Ho Chi Min City and increased services to Bali. Qantas launched Sydney to Beijing and Melbourne to Narita after launching a new Brisbane-Tokyo service the year before.